- MPC set to vote in favour of holding rates at 5.25%

- Hopes of a dovish pivot as inflation cools

- Mixed data since February MPR set to keep bank sidelined

- Experts divided on June or August for start of cuts 

By Harry Daniels   

LiveSquawk News   

@HarryDaniels71    

20 March 2024 | 12:30 GMT

Data released since the last interest rate announcement suggests the Bank of England’s Monetary Policy Committee (MPC) will not yet be reassured enough to signal a loosening bias.

An economists’ poll predicted that the MPC will keep its main lending rate stable at 5.25% when it announces its decision on Thursday. In terms of the vote, a majority of respondents see a three-way split of 1-7-1.

As global central banks wrestle with the concept of diminishing inflationary pressures juxtaposed against persistently tight labour markets, rate setters at Threadneedle Street, home of the country’s central bank will conclude their two-day meeting before announcing policy on Thursday.

In a scenario typical of many Western economies, economists still flag elevated services inflation as a hurdle to more dovish central bank action.

Citi Global Economics said it remained concerned that while global inflation continued to ease, services inflation was still too high. “Headline inflation was now running close to 2019 levels. Core inflation has moderated significantly as well, but progress has been slower as tight labour markets are keeping wage growth elevated and exerting upward pressure on services prices,” analysts wrote.

Commentators highlighted that economic activity since February’s meeting has remained consistent with recent trends.

The latest inflation data released on Wednesday morning showed CPI continued to slow in February, albeit less than estimates. Last week, the UK said GDP growth expanded 0.2% in January, matching forecasts and climbing from the 0.1% contraction seen in December.

March’s Labour Force Survey showed further loosening although wages remain at relatively elevated levels.

JP Morgan contended that from a mechanical perspective, there was enough in the data to justify a somewhat less restrictive policy stance than before.  “The acute phase of the inflation shock has long passed. However, the BoE probably requires more convincing to actually start the ball rolling. It is aiming to avoid having to potentially retrace its steps after beginning to ease and may struggle to contain expectations after it has started,” bank analysts wrote.

Since February’s Monetary Policy Report (MPR), comments from committee members have resisted the temptation to signal a more relaxed stance. In the main, officials said they still sought further evidence that elevated price pressures were less embedded before easing. 

The bank’s chief economist, Huw Pill said, “I recognise that we are now seeing early signs of a downward shift in the persistent component of inflation dynamics, those signs thus far remain tentative. In my view, we have some way to go before such evidence becomes conclusive.”

Barclays said that although it does not expect any changes to key guidance from the MPC the evidence was building that disinflation was sufficiently embedded for cuts to come in June.

However, JP Morgan continued to view August as the most likely month for a cut. “For the May meeting, there is only one additional round of monthly data. This makes it less likely that the data will send a decisive signal that emboldens the BoE to move or strongly signal an imminent cut.”

Sam Cartwright of Societe Generale said “We have pushed back our expectation of the timing of the first rate cut by one month to June. We have made this move because we believe that before it considers easing, the BoE will want to see the outcome of the April pay deals, which is when a large portion of workers are granted pay increases and the National Living Wage increase comes into effect, and it won’t be available until the June meeting.”